BankUnited(US:BKU)2023-08-01 16:00Glossary of Defined Terms The report provides a glossary of acronyms and terms used throughout the document, including financial, regulatory, and company-specific definitions - The report provides a glossary of acronyms and terms used throughout the document, including financial, regulatory, and company-specific definitions such as ACL (Allowance for credit losses), CECL (Current expected credit losses), FHLB (Federal Home Loan Bank), and SOFR (Secured Overnight Financing Rate)454680 PART I. FINANCIAL INFORMATION This section details the company's unaudited financial performance, condition, market risk, and internal control effectiveness Financial Statements (Unaudited) This section presents BankUnited, Inc.'s unaudited consolidated financial statements for Q2 2023, detailing its financial position and performance Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $35,871,479 | $37,026,712 | | Loans, net | $24,463,157 | $24,738,042 | | Total Deposits | $25,838,652 | $27,509,334 | | Total Liabilities | $33,345,169 | $34,590,731 | | Total Stockholders' Equity | $2,526,310 | $2,435,981 | Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net Interest Income | $213,878 | $441,752 | | Provision for Credit Losses | $15,517 | $35,305 | | Net Income | $57,996 | $110,878 | | Diluted EPS | $0.78 | $1.48 | Consolidated Cash Flow Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $423,574 | $1,055,430 | | Net Cash from Investing Activities | $690,549 | $(1,427,654) | | Net Cash from Financing Activities | $(1,385,601) | $571,140 | | Net (Decrease) in Cash | $(271,478) | $198,916 | - The Allowance for Credit Losses (ACL) increased by $18.9 million to $166.8 million at June 30, 2023, from $147.9 million at year-end 2022, primarily due to a deteriorating economic forecast and an increase in certain specific reserves169170 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting strengthened liquidity, stable credit quality, and robust capital amid net interest margin pressure Overview and Quarterly Highlights Q2 2023 net income was $58.0 million, with improved liquidity and capital despite declining net interest margin from rising funding costs Quarterly Financial Performance (in millions, except per share data) | Metric | Q2 2023 | Q1 2023 | Q2 2022 | | :--- | :--- | :--- | :--- | | Net Income | $58.0M | $52.9M | $65.8M | | Diluted EPS | $0.78 | $0.70 | $0.82 | - The bank's liquidity position significantly improved, with total same-day available liquidity increasing from $9.4 billion at March 31, 2023, to $14.7 billion at June 30, 2023, and the ratio of available liquidity to estimated uninsured, uncollateralized deposits improved to 167% from 95% over the same period303 - Total deposits grew by $116 million during Q2 2023, stabilizing after industry-wide volatility, though non-interest bearing demand deposits declined by $62 million during the quarter333 - Book value per common share improved to $33.94 and tangible book value per common share rose to $32.90 at June 30, 2023335 Results of Operations Operating results were shaped by a contracting net interest margin from rising funding costs, alongside increased non-interest income and expenses Net Interest Margin Analysis | Metric | Q2 2023 | Q1 2023 | Q2 2022 | | :--- | :--- | :--- | :--- | | Net Interest Margin (Tax-Equivalent) | 2.47% | 2.62% | 2.63% | - The net interest margin was negatively impacted by a higher rate environment and increased competition for deposits, leading to a decline in non-interest bearing demand deposits and an increase in higher-cost funding sources like FHLB advances6 Provision for Credit Losses (in thousands) | Period | Provision Amount | | :--- | :--- | | Q2 2023 | $15,517 | | Q2 2022 | $23,996 | | H1 2023 | $35,305 | | H1 2022 | $31,826 | - Non-interest income for Q2 2023 was $25.5 million, a significant increase from $13.5 million in Q2 2022, mainly due to higher BOLI income and smaller losses on marketable equity securities14344 - Non-interest expense increased to $145.2 million in Q2 2023 from $127.4 million in Q2 2022, driven by investments in personnel and technology, and a higher FDIC assessment rate16345370 Analysis of Financial Condition As of June 30, 2023, total assets were $35.9 billion, reflecting strategic balance sheet management, stable loans, strong asset quality, and robust liquidity and capital - The investment securities portfolio was in a net unrealized loss position of $599.4 million at June 30, 2023, an improvement from $674.2 million at year-end 2022, with losses attributed to rising interest rates, not credit issues129155 - Commercial real estate (CRE) loans totaled 23% of total loans, with a weighted average LTV of 57.1% and DSCR of 1.88, concentrated in Florida (60%) and the NY tri-state area (25%)4 - Asset quality remained favorable with a non-performing asset to total assets ratio of 0.34% and an annualized net charge-off ratio of 0.09% for the first six months of 2023359393 - The Allowance for Credit Losses (ACL) to total loans increased to 0.68% at June 30, 2023, from 0.59% at December 31, 2022, reflecting a more cautious economic outlook305424 - At June 30, 2023, 66% of the company's deposits were estimated to be insured or collateralized303451 Liquidity and Capital Resources The company maintains strong liquidity and robust capital ratios, with $14.7 billion in same-day available liquidity and CET1 ratios well above regulatory requirements - Total same-day available liquidity was approximately $14.7 billion at June 30, 2023, consisting of cash, FHLB capacity, FRB capacity, and unencumbered securities438 Regulatory Capital Ratios (June 30, 2023) | Ratio | BankUnited, Inc. | BankUnited, N.A. | Well-Capitalized Requirement | | :--- | :--- | :--- | :--- | | CET1 Risk-Based Capital | 11.15% | 12.99% | 6.50% | | Tier 1 Risk-Based Capital | 11.15% | 12.99% | 8.00% | | Total Risk-Based Capital | 12.96% | 13.62% | 10.00% | | Tier 1 Leverage | 7.55% | 8.79% | 5.00% | - Including the impact of Accumulated Other Comprehensive Income (AOCI), the pro-forma CET1 ratio would be 9.7% at the holding company and 11.5% at the bank, still well above required minimums360441 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed via NII simulation and derivatives, with NII forecasted to decrease in various rate scenarios Net Interest Income Sensitivity (Year 1) | Rate Shock | Change in NII (June 30, 2023) | | :--- | :--- | | +200 bps | (4)% | | +100 bps | (1)% | | -100 bps | 0% | | -200 bps | (3)% | - The company actively uses derivative instruments, including interest rate swaps and caps, to hedge against interest rate fluctuations on both liabilities and assets467488 - The company is managing the transition from LIBOR to alternative reference rates like SOFR, with approximately $5.0 billion in financial instruments still indexed to LIBOR expected to convert at their next reset date469491 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023493 - No changes were made during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting472 PART II. OTHER INFORMATION This section addresses legal proceedings, updated risk factors, equity security sales, and required exhibits Legal Proceedings The company is involved in various legal actions, which management believes are unlikely to materially impact its financial condition or operations - Management has concluded that the likelihood of any material adverse impact from ongoing legal proceedings is remote295494 Risk Factors This section highlights new risk factors from recent regional bank failures, potentially impacting liquidity, funding, and operations, alongside adverse regulatory changes - A new risk factor has been identified related to the recent failures of three regional banks, which has eroded customer confidence and could negatively impact BankUnited's liquidity and results of operations473495 - The company faces potential adverse changes to laws or regulations, such as higher capital or liquidity requirements, and increased FDIC deposit insurance premiums as a result of the recent bank failures501 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity security sales or Rule 10b5-1 trading arrangement adoptions or terminations by directors or officers - There were no unregistered sales of equity securities during the reporting period474 - No director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023496 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The list of exhibits includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL taxonomy files497